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DIRECTIVE No

DIRECTIVE No. 13/1999/CT-TTg OF MAY 12, 1999 ON REORGANIZING THE PRODUCTION AND BUSINESS ACTIVITIES OF THE CIGARETTE INDUSTRY

After nearly nine years� implementing Decision No. 392-CT of November 12, 1990 of the Chairman of the Council of Ministers (now the Prime Minister) on reorganizing the cigarette production and circulation and Directive No. 278-CT of August 3, 1990 on banning the import and circulation of foreign-made cigarettes on the domestic market, certain initial results have been obtained, thus helping stabilize Vietnam�s cigarette industry and increase revenue for the State budget. Yet, the obtained results still fail to meet the set requirements; cigarette manufacturing establishments in the country lie scattered even in many rural and urban districts; and the direction and control by ministries, branches and levels have been neglected. All these have resulted in inefficient operation of local small cigarette producers, prolonged losses for a number of enterprises, the failure to ensure environmental hygiene, the failure to register the trademarks of some kinds of cigarette and to ensure the product quality set by the State. Meanwhile, the circulation of illegally imported cigarettes on the domestic market has been intensified to a more and more serious extent, thus hurting the domestic cigarette production. In order to overcome the above situation, the Prime Minister requests the ministries, branches, the People�s Committees of the provinces and centrally-run cities and Vietnam Tobacco Corporation to fulfill the following urgent tasks:

1. The State exercises uniform management over the cigarette industry. This policy has been synchronously and consistently reflected through the State�s management from the work of planning to the elaboration of plans, policies for development investment, the import of machinery, production equipment, raw materials and materials, the export of cigarettes, the registration of production quality and trade marks, advertisement and marketing, as well as other relevant economic policies. The State monopolizes cigarette production; only State enterprises and joint ventures with foreign parties which have been licensed and met the prescribed conditions can produce cigarettes. The production and circulation of this kind of goods must be reorganized and stabilized with the following targets: raising the quality of cigarettes and tobacco produced from domestic raw materials, meeting the market demand and stepping up export.

2. Policy on investment in the cigarette industry:

- In the field of cigarette production: No investment shall be made in the construction of new cigarette manufacturing establishments besides units already licensed and units ready for joint ventures to produce high-grade cigarettes; and intensive investment shall be made in key projects with the modernization of technologies, machinery and equipment, the raising of product quality, the production of high-grade shredded tobacco as import substitutes, in order to enhance the competitiveness of domestic enterprises especially when the country is in the process of international integration.

- To cease making new cooperation projects for cigarette production or processing or cigarette-manufacturing joint ventures with foreign parties; not to add new international trade marks for cigarette.

- To encourage the investment in the cultivation and processing of raw materials, the domestic production of cigarette materials in order to use them as import substitutes and step up the export thereof, gradually reducing the current trade deficit.

3. For concerned ministries and branches:

The Ministry of Industry:

- To direct Vietnam Tobacco Corporation and localities to implement the cigarette industry�s production and business strategy till the year 2010, which has been already ratified by the Prime Minister.

- To assume the prime responsibility for drawing up, together with the Ministry of Planning and Investment, the Ministry of Finance, the Central Board for Renewal of the Management of Enterprises, the concerned People�s Committees and Vietnam Tobacco Corporation, the plan for reorganization of cigarette-manufacturing establishments in the spirit that the State monopolizes the production with concentrated establishments; that only establishments having the capacity of over 50 million packs/year, the high and advanced technologies, modern synchronous equipment and the capability to ensure the environmental hygiene shall be allowed to maintain their operation. The reorganization must be strictly implemented, creating conditions for production and business activities of enterprises which do business efficiently. Small- sized production and/or business units which have suffered from losses and been deeply in tax-debt shall be merged or dissolved, or shall change their production and/or business lines. Vietnam Tobacco Corporation shall play the leading role in management and reorganization of the cigarette industry.

- The cigarette-manufacturing establishments must be managed directly by ministerial-level agencies or the People�s Committees of provinces or centrally-run cities. To immediately scrutinize cigarette manufacturing establishments and tightly control the cigarette production and business; the district-level administration must not directly manage cigarette manufacturing establishments; not to let private traders take advantage of the State enterprises� names to produce and/or trade in cigarettes.

- To tightly control the current production capability as well as equipment capacity of the cigarette manufacturing enterprises nationwide, which are not allowed to expand their production beyond the current cigarette production capacity.

- To coordinate with the Ministry of Agriculture and Rural Development, the Ministry of Finance and the People�s Committees of the provinces and centrally-run cities in directing Vietnam Tobacco Corporation and cigarette enterprises to draw up planning and investment plan, to build appropriate purchase machenism so as to develop to cigarette raw materials zones particularly in deep-lying, distant and economically difficult areas, contributing to the realization of the program for hunger elimination and poverty alleviation, meeting the demands of domestic production, producing import substitutes then proceeding to export raw materials and domestically produce scent, auxiliary materials, equipment and spare part thereof, in order to reduce import and support the domestic engineering industry to develop.

The Ministry of Planning and Investment:

- To make the assessment of the production and business activities of cooperation enterprises or joint ventures with foreign parties for cigarette production. Any violation of law must be strictly handled according to law. The investment in renewal of equipment, replacement of old equipment as well as the import of cigarette producing machines by enterprises must be consulted with Vietnam Tobacco Corporation and approved in writing by the Ministry of Industry.

- To join the Ministry of Industry in performing the tasks assigned by the Prime Minister to the latter as stated in this Directive. To propose handling measures (including the withdrawal of licenses) against joint ventures with foreign parties for production cooperation not in line with the general regulations and having operated inefficiently.

- To inspect the investors of ministries and localities, who have been already licensed to invest in the cigarette industry but failed to comply with the contents of the Directive, and propose solutions to the Prime Minister for consideration and decision.

The Ministry of Finance:

- To strictly implement the Special Consumption Tax Law, correctly and fully collect tax, without exempting tax for any enterprises producing and/or trading in cigarettes managed by local or central government. To put an end to the state of tax arrearage, to strictly handle tax fraud and evasion according to current laws.

- To study and submit to the Prime Minister the policy of leaving value added tax from the purchase of tobacco leafs in regions where high-quality raw material tobacco is grown, substituting the import raw materials and exporting it.

- To consider soft loan to the cigarette industry for investment in tobacco-growing areas, processing and reserving raw material tobacco for export. To study the policy of protecting home-grown tobacco and adopt the policy of insurance for tobacco.

- To work out, together with the Ministry of Industry and Vietnam Cigarette Corporation, a plan on affixture of stamps of home-made cigarettes for implementation in early 2000.

The Ministry of Trade:

- Based on the Commercial Law and coordinating with the Ministry of Industry and other concerned ministries and branches, to study and submit to the Prime Minister legal documents on cigarette sale promotion and marketing, not to let the marketing go in excess.

- To soon promulgate the regulation on conditional cigarette business so as to review organizations and individuals that have traded in cigarettes, reorganize the network of cigarette agents, retails and wholesale, and ensure that cigarette trading is easily controlled and managed.

- To direct the Central Market Management Department to propose measures and effectively enforce the ban on consumption of imported cigarettes, fake cigarettes and label-imitated cigarettes being circulated on the market and severely handle according to law such offenses.

- To suspend permitting the temporary import for re-export of foreign-made cigarettes.

The Ministry of Science, Technology and Environment:

- To scrutinize the registration of cigarette trademarks. To build the mechanism for coordination with concerned agencies in effecting the registration of cigarette trademarks in a strict and convenient manner.

- To coordinate with the Ministry of Trade and the Ministry of Health in working out measures to prevent the consumption of cigarettes without trademark and goods quality registration certificates; to handle disputes over copyrights. To announce in the first quarter of every year the cigarette trademarks permitted to be circulated on the market; to early guide the implementation of Directive No. 199/TTg of April 3, 1997 of the Prime Minister on the management of solid waste so as to ensure environmental hygiene.

The Ministry of Health:

To coordinate with the Ministry of Science, Technology and Environment in completing the system of cigarette quality norms under the Vietnamese standards, which is necessary for the goods quality control and registration with regard to cigarette trademarks permitted for production in order to minimize the impact on the consumers� health. From now on, all cigarette- manufacturing establishments must register the quality of their products before they are turned out and sold on the market.

The Ministry of Culture and Information:

To coordinate with the Ministry of Trade in studying, then submitting to the Prime Minister for decision a number of information to market the products to the consumers to a necessary extent and banning the advertisement of cigarette in any form. To take measures for management of the printing of cigarette packages in order to nip in the bud the production of fake cigarettes and cigarettes with imitation trademarks.

The Ministry of Public Security:

To coordinate with the Ministry of Trade (the Market Management Department), the General Department of Customs, the Ministry of Finance (the General Department of Tax) and the People�s Committees of the provinces and centrally-run cities in investigating, detecting and strictly handling cases of illegally producing and consuming cigarettes.

The People�s Committees of the provinces and centrally-run cities:

- To coordinate with the ministries and central agencies in implementing the policy of reorganizing cigarette enterprises in their respective provinces and cities.

- To supervise the cigarette enterprises� observance of the State�s regulations.

- The ministries, concerned branches and the People�s Committees of the provinces and centrally-run cities shall coordinate with mass media agencies in launching a campaign to widely popularize the policy and measures against smuggling of cigarettes, particularly among the border population, so that they refrain from cigarette smuggling or lending a hand to the cigarette smugglers in any form in strict accordance with the Prime Minister�s Directive No. 835/1997/CT-TTg of October 11, 1997 on the struggle against smuggling in the new situation. To work out measures to restrict the trading in illegally imported cigarettes and request the cigarette traders to make written commitments not to deal in illegally imported cigarettes, to strictly manage State enterprises or social organizations, not letting them to participate in trading in illegally imported cigarettes. To educate and severely handle transport means owners or operators who deliberately lend a helping hand to smugglers in the transport of illegally imported cigarettes.

The ministers, the heads of the ministerial-level agencies and agencies attached to the Government, the presidents of the People�s Committees of the provinces and centrally-run cities, and Vietnam Tobacco Corporation shall have to organize the implementation of this Directive.

Prime Minister

PHAN VAN KHAI